Buyers who shrugged off final month’s synthetic intelligence (AI) scare within the insurance coverage sector would possibly need to brace themselves for a actuality verify. A brand new report from BofA World Analysis estimates greater than $15 billion in insurance coverage business commissions are thought of “low complexity” and face a not immaterial threat of AI disintermediation. In different phrases: an actual chance.
BofA disagrees.
“Our view is that large language model digital agents can effectively do a non-immaterial portion of the work currently provided by 20-30k independent agents across the United States,” the BofA report acknowledged.
The core of the agency’s bearish thesis facilities on an enormous pool of routine, low-complexity insurance coverage insurance policies. The BofA analysts, Joshua Shanker, Joseph Tumillo, Cyril Onyango, and Fatima Keita, checked out simply six main carriers catering to small companies and private traces: Vacationers, Hartford, Progressive, Cincinnati Monetary, Hanover, and Selective. From these six corporations alone, BofA recognized over $15 billion in commissions paid to unbiased brokers in 2025 that largely skew towards low-complexity dangers.
For instance, Progressive paid over $6 billion to unbiased brokers final yr, whereas Vacationers and Hartford paid roughly $3.35 billion and $1.25 billion, respectively, in segments dominated by private traces and small industrial enterprise. BofA notes that some of these insurance policies, comparable to customary dwelling and auto insurance coverage, signify low-sophistication transactions the place human brokers add little worth, making direct-to-consumer digital channels a substantial cost-saver for the customer.
Amrish Singh, CEO of the AI insurance coverage startup Liberate, instructed Fortune that he thinks BofA’s estimate checks out. His personal math reveals a variety of $4.8 billion to $33.6 billion of insurance coverage duties that may be automated within the U.S. alone.
The snowball impact
Whereas bulls argue that enormous insurance coverage brokers don’t closely take part in private traces or small industrial markets, BofA counters that years of fixed “tuck-in M&A” have created a “snowball effect.” Lots of of small acquired retailers have introduced a big quantity of low-complexity, small-ticket enterprise underneath the umbrellas of enormous brokers, a vulnerability that’s usually obscured by subpar public disclosures. Moreover, even large-case, complicated enterprise—which is unlikely to face direct disintermediation—might expertise pricing deflation as AI demystifies the insurance coverage markets for stylish company consumers.
Some traders have equated the AI risk to the much-hyped however slow-to-materialize disruption of self-driving automobiles. Nonetheless, BofA attracts a pointy distinction. Whereas transitioning to autonomous automobiles would require trillions of {dollars} in infrastructure and take a few years, deploying massive language mannequin chatbots is affordable, straightforward, and taking place proper now. For example, the report factors to Munich Re’s Subsequent Insurance coverage, which already affords an AI chatbot on its web site the place prospects can buy and bind industrial insurance policies instantly with out a human agent.
Whereas acknowledging that making long-term predictions within the face of technological innovation is “difficult,” BofA notes that Fb/Meta and Google/Alphabet didn’t change print promoting in a single day however that over 20 years, shopper conduct modified to dramatically shrink the print advertisements market. “We are not arguing that insurance intermediaries will disappear or that Coca-Cola will buy its insurance from a chatbot,” BofA mentioned, however it urged traders to look intently at this sector, as insurance coverage distributor shares don’t appear to be discounting the dangers.
BofA factors out that the sector at present trades at 22x trailing free money circulate and 15 occasions enterprise worth to trailing Ebitda. Whereas bulls would possibly argue that the shares look low-cost after falling 24% from peak valuations set a yr in the past, BofA cautions that these multiples have merely returned to pre-pandemic ranges. Moreover, BofA asserts that insurance coverage distribution corporations regularly make the most of liberal earnings “adjustments”—comparable to excluding integration prices from their regular stream of acquisitions—that are inclined to considerably flatter their true earnings energy.
Finally, BofA isn’t predicting the in a single day disappearance of the human insurance coverage agent, neither is it suggesting that huge companies like Coca-Cola will all of a sudden purchase complicated insurance coverage insurance policies from a chatbot. Nonetheless, BofA warns that an company enterprise at present perceived as having 3% to 7% natural income development might see that slip to 1% to five% within the face of disruptive know-how. BofA concludes that with 10% to twenty% of present enterprise doubtlessly going through disintermediation, the business’s premium valuations depart little or no room for error.
For this story, Fortune journalists used generative AI as a analysis device. An editor verified the accuracy of the data earlier than publishing.
